In terms of diversification between equities and bonds, nothing. not anymore. They aligned the rise of the bear market.
To wolf richter for wolf street.
According to Mortgage News Daily, the average 30-year fixed mortgage rate returned to 6.25% on Tuesday after weeks of high daily volatility. Today’s rate was about the same as the June 14th high of 6.28%, but it all turned upside down for a few months with the start of a beautiful summer bear market rally. Mortgage interest rates are no longer on an upward trend.
I call them sacred mortgage rates. Because that’s the sound people are making when calculating their mortgage payments at that rate to buy their dream cabin at today’s ridiculous prices. mortgage news daily):
Yields on government bonds soared to multi-year highs.
The bear market rally was substantial. It started in mid-June and lasted until mid-August. Both bonds and stocks surged and then began to unwind their surge. Equities have only partially reversed the bear market rally, but mortgages and Treasuries have already reversed it all.
1 year government bond yield It rose 14 basis points to 3.61%, the highest since November 2007. The spike he started in November 2021 was almost 0%. The summer bear market rally is shallow and barely visible on long-term charts.
2 year government bond yield That’s about the same as last Thursday’s 3.51%, the highest since November 2007. The surge he started in September 2021. Yield responded instantly. The summer gain was a little more pronounced than the 1-year yield.
10 year government bond yield It rose 13 basis points to 3.33%, the third highest since February 2011. This was just days before the start of the summer bear market rally in mid-June, and now he’s squeezed out of the 10-year yield.
30 year government bond yield It rose 14 basis points above its November 2018 high to 3.49%, its highest since September 2011. The summer bear market rally is well represented on the charts, but is consistent with other short-lived rally.
So we’re squeezing all sorts of hands about the end of the bear market rally that was so much fun over the summer.
In terms of diversification between equities and bonds, nothing. It used to be. Not anymore. As bond prices rise, yields fall. When bond prices fall, yields rise. They also kept pace in the summer rallies. It’s a matter of which one moves faster.
As for the bond market, corporate bond issuance has revived as companies are still trying to keep interest rates relatively low. According to Bloomberg, about 20 companies, including Lowe’s, Walmart, Deere and McDonald, will issue $30 billion to $40 billion in bonds this week and are looking for buyers. And this is apparently causing US Treasury yields to skyrocket and more.
There is always a reason why yields are going up and unwinding bear market gains.
At the most basic level, the market spent two months from mid-June to mid-August. Fight the Fed and blow away hawkish rhetoric, and, quoting out of context, evokes the delusion that the Fed is in fact dovish and heading for a turnaround. As tightening naysayers instigated and spread the Pivot gospel, enough people took it seriously that there was a summer bear market rally.
By mid-August, however, the gains had slowed under the Fed’s determined hawkish comments. And he gave Powell’s Jackson Hole speech on August 26. Cleared up remaining confusion.
So let’s get back to basics. Inflation trajectory, QT rallying at full speed this month, upcoming rate hikes, and still overly inflated markets, speculation sinking in when the Fed will stop rate hikes – 4%? – and inflation and labor Let them and QT work their magic to chill the market.
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